Business owners know the importance of a contract. A well-drafted contract clearly defines the parties’ obligations and protects the interests of the business.
While each contract requires individualized consideration, there are a number of important clauses that appear in many business contracts.
Force majeure clause
A force majeure clause is a provision excusing a party from performing under a contract if an unexpected event occurs that renders performance impossible.
For example, if a hurricane or tornado made it impossible for a party to perform under a contract, the force majeure clause would excuse the party from liability for nonperformance.
Depending on the circumstances, a business may want to include a confidentiality clause requiring the other party to maintain confidentiality of important information. Confidentiality clauses are most common when a contract requires use of proprietary or sensitive information.
Limitations on liability
In some circumstances, a party may want language limiting the amount that the party would need to pay in the event of losses under the agreement. In essence, this clause shifts the risk of loss from one party to the other party.
An indemnification clause requires one party to compensate the other party in the event of losses by certain predefined causes, most often loses stemming from actions of third parties. Like a limitations on liability clause, an indemnification clause shifts the risk of loss from one party to another.
Governing law clause
A contract can specify the law that governs the agreement. Laws can vary among states and many businesses prefer certainty about which state’s law will govern an agreement.
Drafting business contracts
Businesses should consult with an experienced attorney for help drafting and negotiating business contracts.
An attorney can advise on the most appropriate clauses to include in agreements and assist in negotiating the best possible language to protect your business interests. That way, you can focus on what is most important: running your successful business.